Episode 14: The Truth About Whole Life Insurance: What They Don’t Tell You

it still depends in the whole picture there's no black and white I don't know about you SCH but when I learn something now it's much more harder to to to contain it than something I learned when I was younger if your next paycheck depends on a certain opinion it's very hard to be objective what would you say is step one step two step three for such a person to ensure that he's making responsible decisions about this the most important thing that you should do on any transaction is understand what is to gain for the other [Music] party hello welcome to another week good to see you again it's it's good to be back how are you amazing I want to discuss a question that came in um it's probably I'm gonna have more what to say on it than you but because it's my area of expertise uh but I would love to discuss it and and and I don't know how much you know about it and how familiar with you are with the topic but at least you're going to be able to ask me the right questions right and the question is can you talk about whole life insurance does it make sense does it not make sense and how do I take out money from a whole life insurance policy that's the question okay so the way I understand the question is that this this person that asked the question was e was either approached by somebody selling life insurance that he should buy a whole life insurance policy or he already has a whole life insurance policy and he wants to know if he should continue it if he has the right product something like that that's the way I understand it and it's two completely different scenarios meaning if if if I would have been approached with such a question with such a uh such a such a situation I would want to know first where are you standing with this currently because if you are standing before uh buying or before by somebody just proposing it I have a different answer and I have a different way to look at it than if you already have one okay and one of the things that bothers me a lot when I listen to some so-called gurus in the finance industry they approach a lot of the financial topics with very black and white glasses meaning it's good or bad and we know usually somebody sends a question they hate for me to tell you depends yeah that's the lawyer answer they don't want me to say depends but it depends it depends on a lot of factors most of the things that you're going to ask will the answer will be a depend it's a good you know it's a good topic to discuss and maybe you can gain a lot of a lot of knowledge and then then be able to apply some of the knowledge in your own situation but it still depends in the whole picture there's no black and white and I think that's true with everything in life not only with you know life insurance not only with Finance usually the people who have a black and white black or white approach it's very very hard most of the times they they are wrong usually depends in a lot of other factors right that makes sense so and the same thing when it comes to when it comes to whole life insurance now I will tell you firstand because I was born and raised in life insurance my father was a life insurance agent for many years since I was a I was a young child I remember my father just you know as a business as a fora I remember him being in the Life Insurance business and then I joined the life insurance business when I was 18 and a half years old I started by working for my father for a few months and then I went out on my own and I was I was in the Life Insurance business for 20 years plent for more than 20 20 plus years right and life insurance is not only something that I have experienced because I was there for 20 plus years it's also my guess the yankasa it's my it's it's something that I learned when I was young I don't know about you should but when I learn something now it's much harder toenter to to contain it than something I learned when I was younger sure and it's very very uh I can say Sad from one from one part but I'm here now and I can say that I want to say it in a way that you know I don't want to say it in a black or white way I want to say it in a way that people should understand that there's a lot of factors involved but what I will tell you is that you know you know this saying when the only solution you have is a hammer every problem looks like a nail yeah right and I also heard once when your next paycheck depends on a certain mindset or on a certain on a certain opinion I think the word is if your next paycheck depends on a certain opinion it's very hard to be objective of course right and and and what I see a lot of times happen to me okay I will I will talk about myself you going you're going into a certain environment where you live and breathe life insurance life insurance life insurance life insurance and then all of a sudden every situation you see there is one solution that you have for that situation and that solution is life insurance of course everybody needs to have life insurance to protect their families you know but term insurance is also life insurance all of a sudden talking about whole life insurance all of a sudden whole life insurance becomes the best investment since you know that he can ever make it becomes the best place to put away money every tax problem you have there is one solution and how is it called life insurance life insurance you're fighting with your wife there's a very simple solution buy life insurance you know you're struggling with your children solution life insurance you don't know you know you don't have you you don't know what to do in business because you don't make enough money life insurance of of course I'm exaggerating but what I can tell you is when I was in the insurance industry I witnessed every week people going around to people to friends family business owners blah blah blah speaking to people collecting problems that people have bringing it to the insurance agency sitting down for the weekly meetings and discussing presenting problems that they found in the street and everybody sits together and discusses and brainstorms how life insurance can be the solution for this problem right sometimes they came up with good ones sometimes they came up with stupid ones and I'm sure some of them worked out and some of them didn't work out and I'm sure if the business would have been something else they would find find solutions for something else right so that's just an introduction okay that doesn't say life insurance is good or bad it just it just tells you the way that some people in the Life Insurance business are wired right why do I say that because it's very important if you are dealing with somebody that has a certain interest that has a certain agenda has a certain bias it's very important for you to understand that in order for you to be objective don't don't just P for it understand with whom you're speaking could be the nicest guy the most honest guy the most amazing guy but just understand what you're dealing with because you have to protect yourself and if you don't know whom you're dealing with if you don't know their agenda and their biases it's very very difficult for you to do the right thing right point taken okay and it's probably the case with every industry that's trying to sell you something of course and I'm and I'm not saying it's a bad thing I'm just saying that people go people people fall very easily for you know y he said that and he's a good guy nice guy he could be the nicest guy but everybody had the to says that right the eyes of wise people are blinded with with when they have a bias it's the same you know what what should we say about simple people and I talk in my book about that the most important thing that you should do in any transaction is understand what is to gain for the other party help him gain that's no problem you should gain but you should know what what is for him to gain in order for you to be able to represent yourself and fight for yourself yeah so you can be objective that's fantastic Point okay okay very good so so now whole life insurance is presented by the insurance industry as a financial vehicle to save money now I'm I'm saying it in a very blank way but it's not it's not blank some some insurance company will will push it more some will push it less some agents will push it more some agents or Brokers will push it less that that that narrative and somehow for whatever reason in the United States the life insurance industry ended up in the financial services industry M it used to be the insurance department and then the financial department somehow now it's Blended and it became one big CH and the life insurance industry presents their product as a investment as a savings and I'm not saying everybody of course don't don't get me wrong not everybody some are very honest with it it's life insurance but the problem becomes when insurance you have an insurance need I understand you have an insurance need you have a family you want to cover them something happens you want to cover them I understand that you have a need to save money for for retirement for whatever it is I understand that you should take care of that but I can tell you one thing in my experience and I have hands-on experience and I did it for many people for hundreds of people I did it why did I do it because I believe this is the right thing to do and I was brainwashed and manipulated by the insurance industry that this is the right thing to do in every situation and when I Grew Older when I saw when I saw when I witness with my own eyes results that I saw by many many people by some worked out beautifully but by many it didn't work out and and I I started happing that I was brainwashed that I was in a certain cult I call it a cult it's a certain cult the insurance industry is a certain cult and it's very very important that you understand what you're dealing with and I can tell you that if you're going to approach the life insurance decision in a way that you're going to make the decision of insurance and your savings or your investment together you're going to end up losing most of the time repeat that again that was very important if you're G if you're G if you have two situations you need insurance you have two needs need n one you need life insurance need to you need to save money and you want your money that you Sav to be invested saved in a place that gives you a deter etc etc most of the time if you're going to take these two needs insurance and savings and you're going to make an a decision to combine the two together in other words buy a policy that will give you the insurance and the savings you're going to end up losing wow because you're not going to have the best insurance and you're not going to have the best savings and you might think that you're gaining because look I'm saving money and automatically I have insurance also this is how a lot of people approach it a lot of the agents sell it this way you're saving the money and you have insurance what why do you why do you care having insurance usually it's not going to work out because later on in life you're going to start first of all it's lousy RS very very lousy RS that the insurance company is going to give you and it's only declining for the last 30 years by most insurance companies and when you buy something you have no idea what you're buying and even if you looking if if you're looking at the guarantees it's you know lousy lousier than lousier if you're looking from a perspective on returns and then what happens is if you need the money or when you need the money by kasas or by retirement you start taking out money and then you're losing the policy anyway so what did you gain of the whole thing you're losing the policy so you end up not having permanent life insurance you end up having a lousy return so you are you know what what did you gain of the whole thing so the insurance industry will come and tell you that you know it's not true because you can take a loan and this is where the problem starts people start taking loans and they start paying interest on the loans and then if for whatever reason the policy ends up collapsing because you drain the policy you take out so much money from the policy the policy ends up lapsing what happens then is you get a big fat 1099 from the insurance company for all the money that you took out minus what you what you uh paid but then all the loans also that you took out in order to pay premiums gets added to the 1099 that you can end up in a situation where you pay more taxes than you ever took out of the policy which is a terrible situation okay I'm not going to go into too much details here because you know we can I can write a book about this and I can I can sell a course about this a 10-hour course about this to people should understand what they're dealing with but it's very important this is when somebody buys a policy if you have a question you should buy a policy a whole life policy or not you you need to look into this and you need to really understand this and if you really want to buy a policy a whole life insurance policy I'm talking make sure you you you discuss it and you you consult with somebody who's who's not biased on it who understands this stuff and he's not going to make any commission and he understands your whole financial picture before you do such a thing so what person's considering a whole life policy if I understand correctly are are you suggesting that it should be the insurance salesman that they're advising with they need to advise with somebody kind of a third party who has various different options available to I'm not saying you shouldn't consult with an insance but at least have a second opinion with somebody that that doesn't have any bias I I don't consider another insurance agent who sells the same stuff every day a second opinion not because he's not he's not honest he could be very honest but he could be brainwashed as well he could be belonging to the same cult that I was around for many many years I got it so then so that that's kind of create just like what would the process look like then somebody's considering looking for a vehicle to save money and to make money like what steps should he go through in order to really get very good question but one before I even tell you what steps he should go through let me tell you what step you should not go through don't talk to a life insurance agent now you want to save money don't talk to a life insurance agent now you want to buy life insurance now talk to a life insurance agent ask him what are my options to buy life insurance of course most of the situations you should start with term insurance maybe later on somebody's very wealthy he has so much money he don't you know could be a good strategy also to park some money into whole life insurance but this is not for the average person this is for the super wealthy people M MH and this is when you want to start before you buying now a lot of people come to me they already bought a policy a life insurance their whole life insurance policy in such a situation it's different why because most of the cost in a life insurance policy again when I say life mean whole life most of the cost is in the early year so you're talking about a person that already saved money uh already put a money into a whole life insurance policy so he already paid the big cost let's put it this way he paid a big cost to do that and now you tell him drop it it's going to be a big cost for him now you might say okay but at least you stop the bleeding but it's not always bleeding a lot of times if you're already in the policy for many years two three four years you already have enough cash value enough of the benefits that you don't have to it's not like if you the it a year from now versus now you're going to gain too much more so you have more leeway you can go with it and make a decision later on okay but what I would say is if you see yourself even if you have a policy but you see yourself in a situation that you can't pay premiums so the premiums are going to be loaned you need the money the cash value for whatever reason for or for whatever reason and you don't plan to pay it back you don't see any way that you can pay it back that means you're going to start paying loan interest and it's going to end up being a big mess and after that after it's going to be a big mess and even bigger mess than now then you're going to Labs the policy and then you're going to get a huge 1099 so if that's a situation it makes sense to surrender the policy cancel it out take out the money and go okay thank you see you later or don't see you later and finish well okay so let's talk about somebody who just approaches you fell who now has decided he really wants to start saving money and he's not sure you know he's been approached by insurance salesman he's been approached by Real Estate Investors he's got a different array of of of possibilities what would you say is step one step two step three for such a person to ensure that he's making responsible decisions about this very simple okay I'm glad that you're bringing it up very simple and I'm going to assume that you're talking about somebody who's a starter you never saved money before starter doesn't have a lot of money but you know knows that it's important wants to take a step in that direction correct beautiful number one he want to save money okay you have to we're going to discuss save money you want to protect your family go buy TM Insurance how much THM Insurance you should buy I believe you need somebody's a young person and earning a good income you should buy 20 times his income about so you're making $150,000 a year get a $3 million ter life insurance that's number one and that's done okay thank you insurance agent I love you you did a wonderful job I'm paying the premiums fine automatic draft from my account I don't know $150 a month $200 a month I have my life insurance that's done now you want to start saving first step in Saving should be have an emergency F have something some money that in case you need any money for unplanned events you should have where to go where do you put that any money market if you want to have the best return go Google for the best paying money market and put it there when you have three to six months of income in a money market so let's say you're making $150,000 a year you have 30 $40,000 sitting in a money market then you can start opening a portfolio how do you open a portfolio there are amazing places to do that one of them is called betterment uh you can Google it Fidelity has some good portfolios Vanguard has some good portfolios you go to any of these big institutions you fill out a question there about your risk tolerance about when do you when when are you going to need the money how long from now how much time from now you think you're going to need the money ET they ask you a bunch of questions and then you put in the money in a portfolio it's a robo advisor it's called a robo advisor index funds very low fees almost none and the money goes there automatically you don't even see it you let them manage it for you most of it will be some S&P 500 shares companies and which has a history yeah it goes go up goes down but you don't need it for a while anyway if you need it for a while don't put it there put it in a savings account but if you need it for the long term put it there in the long term it's always going to beat anything you know I'm not saying any I said anything but you know any risky thing as long as business is going to be strong in America business is going to be strong around the world you're building a portfolio that has some American companies some China companies some other companies some growth stocks some Value stock etc etc you have a nice Diversified portfolio and that's it don't think about it if you see it goes down what what should you do if you see it goes down should it take out your money or should you put in more right usually if you're G to put it that's what happened the last 70 80 years when it went down if it put in more you know about Co people were panicking whoa the stock market crashed the smart people went and loved it and they put in a lot of money in the stock market then right so that's step two that's step two you know Warren Buffett says the stock market is the only place where I see people buy high and sell low right usually usually you hear that there's a sale in the in your favorite retail store you go and you buy more and when it's expensive you sell okay that's step two anything missing so far no I think you've covered insurance you've covered you know savings step three you want to get more sophisticated you already have the portfolio in the stock market you know you can invest something in real estate also you can find a good syndication a good portfolio but make sure you understand what you're doing and you deal you're dealing with people that you have good references on them good references doesn't mean that you spoke to somebody in near him good good references means that you spoke to somebody who invested with them for quite a while while and they understand what's going you understand what's going on you show to your attorney you show the documentation you know that you're dealing with legit people with a legit setup and you know that they know what they're doing that's that's it you want me to to get more sophisticated I don't know if we need more sophisticated at this stage you I used to talk more sophisticated stuff you know on my yish podcast I'm up to I think 130 uh episodes my most watched episodes are the simple episodes I I imagine they are because I talk to I thought you know what am I going to bring to the table some simple stuff everybody knows that but somehow this is what people are looking for you know why because people are not looking for information anymore they're looking for Action right and if you talk about fancy stuff it's going to be it's going to look very nice you know I'm going to be able to impress a lot of people and we'll we'll we'll have an people is we're going to think wow the there are wonderful you know they they know so many complicated stuff nobody cares between you and me what do car what's the bottom line what do I what do I have from it what's in it for me if it's simple that's then you know what's in it for you success and I can tell you another thing since we're talking about Simplicity the even if you would have told me that life insurance or whole life insurance is a very good place to save money you know how many phds you need in order to understand how whole life insurance works works I'm sure most insurance agents don't understand how whole life insurance works most insurance agents don't understand that right let alone the average person and I very strongly recommend you to stay away from complicated stuff because not because it's good or not good it's because it's not going to be good for you because if you don't understand it completely it's not going to be good for you in the long term the me the slightest situation that arrives you're not going to know how to deal with it right which I think is aite in life in general you know it's generally the straightforward path is the right path absolutely you did an amazing job listening wow yeah I could be a good listener I don't always have to [Laughter] talk yeah um so so in this episode I used you more I I used you more as a uh sounding board you know now that you mention that I'm G I am going to speak for one moment and that is how crucial it is to develop the skill of being a good listener yeah part of part of being successful is now you sound like a rabbi you have to be a good listener yeah okay we for your [Music] will get down wisdom for yourth